Euro gains the most on dollar since January

Swedish krona, Thai baht trade higher after anticipated rate hikes

By

DeborahLevine

WilliamL. Watts

NEW YORK (MarketWatch) — The euro jumped by the most since January on Wednesday as rising stocks and corporate earnings encouraged investors to shift out of the safe-haven dollar, and fueled a push of the Australian dollar to a new high.

The U.S. dollar index
DXY, +0.55%
which measures the greenback’s movements against a basket of six major currencies, dropped to 74.384, down from 75.038 late Tuesday. The index is down 5.9% so far in 2011.

Gold pushes to record

(2:11)

Gold reaches a record price, hover in the $1,497 range amid fears European nations may struggle to pay debt.

The euro
EURUSD, -0.7441%
changed hands at $1.4511, up from $1.4339 in late North American trading on Tuesday. The gain was the biggest for the shared currency in three months.

The euro set a new 15-month high at $1.4547, more than reversing the loss attributed earlier this week to fears of a potential restructuring of Greek debt.

Currency traders often look to the relationship between the euro and Japanese yen, traditionally a safe-haven harbor, as an indication of investors’ risk appetite. Recently, the euro
EURYEN
pared its gain to 0.8% versus the yen, to ¥119.56.

The dollar’s move down was spurred by strong U.S. corporate earnings late Tuesday from tech giants IBM
IBM, +0.31%
and Intel Corp.
INTC, +0.27%
said Adam Cole, global head of foreign-exchange strategy at RBC Capital Markets. That boosted U.S. stock index futures and European equity markets.

Any signs of better growth prospects recently had aided the euro by heightening expectations that the European Central Bank will raise interest rates again. That’s in stark contrast to the outlook for the U.S. Federal Reserve, the Bank of Japan, or even the Bank of England because of other considerations in those countries.

“The ECB is on a more restrictive path, having already hiked rates,” said Christopher Sullivan, chief investment officer at United Nations Federal Credit Union. “They’ll probably hike again in July if inflation proceeds on its path. That’s why the euro is doing what it’s doing.”

Also soothing investors’ minds, Spain received strong demand for its auction of 10- and 13-year bonds.

The yield on the Spanish Treasury‘s 10-year bond rose to 5.472% from 5.162% in a previous auction in March. The 13-year bond sale produced an average yield of 5.667%, up from 4.248% in a November 2009 sale of the same issue.

Risk appetite was buoyed as the yield on the 10-year bond remained below the 5.5% barrier, said Boris Schlossberg, director of currency research at GFT, in emailed comments.

Also Wednesday, the British pound
GBPUSD, -0.0556%
climbed to $1.6405, compared to $1.6310 Tuesday. However, the gains in sterling were capped as minutes of the Bank of England’s April 6-7 policy meeting offered little indication that rate-hike advocates will prevail at next month’s policy meeting, analysts said. Read more on Bank of England minutes.

Australian dollar also gains

In earlier trading, the Australian dollar rose to its highest level since the currency was allowed to float freely in the early 1980s.

The currency of the commodity-sensitive economy is also looked at as a barometer of investors’ appetite for risk. The aussie tends to rise along with willingness to move into higher-yielding assets.

The aussie
AUDUSD, -0.3350%
rose 1.2% to $1.0670 after touching $1.0692, according to FactSet Research data.

“Both domestic and international developments have propelled the Australian currency higher — gold and silver prices have surged once more, U.S. corporate earnings results are mostly beating expectations, and traders are again investing heavily in the carry trade to the detriment of the Japanese yen,” said Michael Derks, chief strategist at FxPro.

A popular position for traders has been to sell low-yielding yen and buy the high-yielding Australian dollar to earn the yield difference.

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